Review of drug subsidy scheme delayed as test case looms

A review of the pharmaceuticals provisions of the Australia-United States free trade agreement has been deferred until after the announcement of the outcome of a landmark appeal.

The appeal by Eli Lilly Australia against the decision not to include the osteoporosis drug teriparatide (Forteo) in the Australian government's Pharmaceutical Benefits Scheme will be decided upon by an independent reviewer and is expected early next year.

The decision is seen by the drug industry as a test case on the effectiveness of concessions won when the agreement was concluded in 2004 (BMJ 2004;328:604). On four occasions, the company's bid to have teriparatide added to the schedule of subsidised drugs, at an annual cost to the government for each patient of about $A10 000 (£4000; €5900; $7800), has been rejected. In March of this year, the Pharmaceutical Benefits Advisory Committee, which evaluates the cost effectiveness of new drugs, stated that there was “uncertain clinical benefit” from using teriparatide.

Ahead of the trade agreement, the US drug industry's most important lobby group, the Pharmaceutical Research and Manufacturers of America, argued that the Australian government's use of reference pricing, which benchmarks the price paid for a patented drug against a generic comparator, was a trade barrier (BMJ 2003;326:680).

Australian negotiators rejected the US government request to dismantle reference pricing but agreed to establish a review process when drugs were not included in the scheme and embedded the “need to recognize the value of innovative pharmaceuticals” as a principle of the agreement.

The Australian Department of Health and Ageing has subsequently set out to accommodate drug industry lobbying for “collaboration” on medicines policy. In May, the department provided the drug company Serono Australia with $A55 000 seed funding, which was later repaid, for an affiliate to organise a conference.

In mid-November, this and other lobbying paid dividends when the government agreed to weaken reference pricing as part of a complex package of measures aimed at cutting the price of generics. Under the change, patented drugs can escape mandatory price cuts if they are considered not to be “interchangeable between patients.”

David Henry, professor of clinical pharmacology at the University of Newcastle, New South Wales, described the change as “very significant,” adding, “It gives companies an opportunity to contest something that they have previously not been able to contest because in the past it was all based on therapeutic equivalence based on head-to-head randomised trials.”

The minister for health Tony Abbott, when announcing the changes, ruled out emulating the New Zealand government's system of calling tenders for the supply of generics, which has resulted in some drugs being up to 60% cheaper.

Thomas Faunce, lecturer at the Australian National University law faculty who has studied the effects of trade agreements on medicines policy, questioned the future of the scheme and said, “The drug industry is progressively whittling away at the core features of the scheme until, sooner or later, it will fall over.”